The People's Republic of China (PRC) is a relative newcomer to Middle East geopolitics and, as far as U.S. interests are concerned, not a very welcome one. Home to the world's largest oil and gas reserves and one of the world's most volatile areas of conflict, the Middle East presents the Chinese leadership with vast opportunities to fulfill its growing energy needs and to profit from massive weapons sales to oil-rich regimes, regardless of the effect on regional stability.

China's undiscriminating and opulent oil and gas transactions with Iran's radical leaders, for example, seem to include the fringe benefit of providing them with Beijing's diplomatic shield for their nuclear ambitions. China has also prevented the United Nations from seriously addressing Syria's refusal to cooperate with the U.N.'s investigations into the assassination of former Lebanese Prime Minister Rafik Hariri.

The PRC's empathy for state sponsors of terrorism and terrorist organizations such as Hamas and Hezbollah and its cynical manipulation of Kurdish politics to leverage Turkey are just a few warning signs that Beijing's intentions in the region are not benign. The most troubling aspect of China's increas­ing presence in the Middle East is Beijing's continued endeavors to strengthen its diplomatic, economic, and military ties with Iran. Moreover, China's support for regional dictators could severely impede efforts by the U.S. and Europe to help their Arab partners with political, economic, and educational reforms and to encourage peace efforts.

Although Beijing acquiesced in July 2006 to the passage of U.N. Security Council Resolution 1696, which gave Tehran until August 31 to suspend its uranium enrichment, it is doubtful that China will support sanctions on Iran for noncompliance. However, it does indicate that Beijing is not yet ready to alienate the United States, which is the largest market for Chinese exports.

If Washington is to nudge Beijing into a habit of supporting peace, stability, and nonproliferation in the Middle East, U.S. leaders should confront Beijing publicly about China's unsettling pattern of behavior in the region. Moreover, Washington should con­tinue to support its allies and friends and to promote democratic governance, economic prosperity, and peace efforts in the Middle East through various reform and confidence-building programs.

Energy and Trade Interests

China needs Middle Eastern oil.[1] Even though the growth of China's oil imports has been deceler­ating lately, overall Chinese demand for fuel resources is still rising. Declining domestic petro­leum production and burgeoning domestic auto­mobile sales[2] exacerbate China's thirst to the point that the PRC has accounted for 40 percent of global oil demand growth since 2000 and will further increase its dependence on Middle Eastern oil in the coming years.

The Middle East currently provides over 45 per­cent of China's total oil imports. By 2015, 70 per­cent of China's oil imports is expected to come from the region.[3] In 2005, the growth rate of China's oil imports slowed by 30 percent, largely due to soar­ing oil prices,[4] and China's overall dependence on oil imports slightly decreased.

Whether this trend will persist is uncertain, but Beijing's extensive interest in Middle Eastern energy resources is evidenced by the considerable number of major long-term oil and gas deals that it has signed with Arab countries. The government-run Chinese Academy of Social Sciences stated in a recent report that "China's dependence on Middle East oil is increasing" and that "the Middle East will be the most important supply source of interna­tional oil for China."[5]

Recent Chinese energy investments in major oil and gas suppliers, including Iran and Saudi Arabia, with unusually lengthy contract dura­tions are aimed not only at locking up a contin­uous, secure stream of energy supplies, but also at taking control of the exploration and develop­ment of oil fields.

Saudi Arabia. China and Saudi Arabia, its top oil supplier, seem to have a symbiotic investment rela­tionship in the oil sector. In addition to purchasing Saudi crude oil outright-Saudi Arabia provides about 17 percent of China's oil imports-China National Petrochemical Corporation (SINOPEC), in cooperation with Saudi Arabia's largest oil com­pany, Arabian American Oil Company (ARAMCO), has invested $300 million to explore the Ghawar natural gas field in the Rub al-Khali desert in Saudi Arabia.[6] In return, ARAMCO invested in a $3.5 bil­lion refinery expansion project in China's Fujian province in July 2005 to enable the plant to handle high-sulfur Saudi crude oil and is constructing another $1.2 billion refinery in Qingdao with SINOPEC.

In January 2006, Saudi King Abdullah signed a broad energy, trade, and investment pact with China but did not reveal details.[7] In April 2006, Chinese President Hu Jintao made a return visit to the Saudi capital, where he continued discreet negotiations on energy projects. In a speech to the Saudi Shura Council, Hu pledged that "China is ready to work with Saudi Arabia and other Arab countries to strengthen peace and development in the Middle East and to build a world of peace, sta­bility and prosperity."[8]

Whether Hu intentionally avoided mentioning any non-Arab states is unclear.[9] Nonetheless, the visits underscored the importance that China attaches to a serious energy partnership with the Saudi kingdom.

Iran. China's growing economic relationship with non-Arab Iran is its most important in the region and eventually will eclipse even its ties with Saudi Arabia. Iran, the world's second largest oil producer, now provides 15 percent of China's oil imports.

In March 2004, Zhuhai Zhenrong Corporation, an oil trading group owned by the Chinese govern­ment, concluded a $20 billon deal to purchase 110 million tons of liquefied natural gas (LNG) from Iran over 25 years, beginning in 2008.[10] In Octo­ber 2004, SINOPEC signed a memorandum of understanding to buy 250 million tons of LNG from Iran over the next 25 years in exchange for the development of Iran's Yadavaran oilfield.[11] Esti­mated at $70 billion to $100 billion, the prelimi­nary agreement would offer SINOPEC a 51 percent stake in the Yadavaran oilfield[12] and deliver 150,000 barrels per day of Iranian crude oil to China for the same period of time.[13]

One week after the initial deal, Iranian Oil Min­ister Bijan Namdar Zanganeh expressed Tehran's wish to see China replace Japan as its largest oil and gas importer,[14] and by the end of 2004, China had become Iran's top oil export market. (Iran is China's second largest source of oil imports after Saudi Arabia.) China and Iran also agreed to build a $1.5 billion gas condensates refinery in the southern Iranian city of Bandar Abbas, which will be run by the Chinese for the first 25 years of operation, after which ownership will revert to Tehran.[15]

China also has significant non-petroleum inter­ests in Iran. A Chinese fiber optic firm is helping to build Iran's broadband network, and a state-owned Chinese appliance company is making television sets in Iran. China's Chery Automobile Company partnered with an Iranian company on an assembly plant in Iran to manufacture 50,000 micro-passen­ger cars per year. The car is called the "Geely" and reportedly sells for $4,500. China North Industries Corporation (NORINCO), a Chinese military industrial firm, has a $680 million contract for work on Tehran's subway system.[16]

Gulf Arab States. With the 17-member Greater Arab Free Trade Area having taken effect on Janu­ary 1, 2005, this Middle Eastern economic bloc presents China with a unified, custom-free market with a population of 280 million where more than 94 percent of all inter-Arab trade takes place.[17]

In a broader perspective, trade between China and the Middle East has been gaining on U.S.-Mid­dle East trade, taking advantage of the setback caused by tighter restrictions imposed after the ter­rorist attacks on September 11, 2001.[18] In 1991, total trade between China and Arab countries was $2.42 billion. Since then, China's trade with the Arab world has grown twentyfold to $51.3 billion in 2005, and trade volume over the past five years has increased by an annual average of 40 percent. The China-Arab Business Conference, an impor­tant initiative of the China-Arab Cooperation Forum, plans to increase China-Arab trade volume to $100 billion by 2010.[19]

The China-Arab Cooperation Forum-estab­lished in January 2004 to strengthen political, eco­nomic, and strategic ties between China and Arab countries-now seems poised to give China a priv­ileged entrée into regional oil arrangements.[20] The China-Arab Cooperation Forum has matured into one of Beijing's two main vehicles for managing its regional ties in the Middle East. China also coordi­nates closely with the Gulf Cooperation Council, a grouping of Gulf Arab states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates), through which China is planning to organize a China-Middle East Free Trade Area.

Iraqi Kurdistan. China also seems to have a strong interest in Iraq's oil production, notably in Kurdish northern Iraq. This is perhaps because of its proximity to the Yadavaran field in Iranian Kurdis­tan. Kurds in Iraq have enjoyed de facto indepen­dence, and Iraq's 2005 parliamentary election gave Kurds unprecedented influence in Iraqi politics.

Since U.S. suspension of Chinese oil concessions with Iraq following the Iraq War in 2003, the Chi­nese have looked for opportunities to access the Kurds' rich oilfields, which contain an estimated 40 percent of Iraq's oil reserves and are in the only Iraqi provinces that are relatively secure from sec­tarian terrorism.[21] High-level government visits between the PRC and the Kurdistan regional gov­ernment have opened up business and investment opportunities in various sectors as well.

The Chinese also have used their relations with the Kurds to leverage Turkey to withhold support for Turkic-speaking Uighur refugees from China's Xinjiang province.[22] China has long been a fierce advocate of territorial integrity and has systemically oppressed separatist movements in Xinjiang and Tibet. Turkey has 15 million Kurds, roughly 20 percent of the total Turkish popula­tion, and is burdened not only with armed Kurd separatist movements, but also with Uighur sep­aratist activists and refugee organizations. Alleg­edly, the Chinese government has implicitly threatened Turkey that Beijing would support Kurds if Ankara did not make life a bit more mis­erable for Uighur exiles.[23]

Strategic Aims and Tactics

China sees its new diplomatic clout in the Mid­dle East as a geopolitical counterweight to the United States. At bottom, Beijing sees chronic cri­ses in the Middle East as distractions for the United States, not as threats to world peace per se.[24]

Beyond straightforward petroleum and gas con­siderations, Beijing now regards cordial and coop­erative ties with Middle Eastern states as crucial to its geopolitical successes. China offers itself as an alternative patron and advocate to the autocratic and theocratic regimes in the region that nurse grudges against America's perceived hectoring about human rights and political freedoms- regardless of whether or not those regimes are state sponsors of terrorism, terrorists themselves, nuclear proliferators, political assassins, or outright thugs. Beijing seems quite comfortable in its close patron-client associations with several entities of concern in the region, including Iran, Syria, Sudan, the Hamas-controlled Palestinian parliament, and Lebanon's Hezbollah state-within-a-state.

Iran. In 2004, Iran's continued noncompliance with its commitments under the Nonproliferation Treaty led to a U.S. move to refer Iran's nuclear weap­ons program to the U.N. Security Council. This move was immediately stymied by China, which earlier in the year had signed a $100 billion gas deal with Tehran. The European efforts to persuade Iran to sus­pend its uranium enrichment activities permanently with offers of economic and diplomatic incentives have not produced any progress since the negotia­tions began in October 2003. The Iranians resumed uranium conversion operation at the Isfahan nuclear plant in August 2005, and the board of governors of the International Atomic Energy Agency (IAEA) finally voted in February 2006 to send the case to the U.N. Security Council. Even then, China insisted on delaying discussions of sanctions against Iran.[25]

China's consistent rhetorical stance on Iran's nuclear program has been that "it must be resolved peacefully" without coercion. In July 2006, the Security Council, with the reluctant assent of China and Russia, passed Resolution 1696. Although its language was significantly watered down during the long debate, Resolution 1696 contemplated imposing sanctions on Iran under Article 41 of the U.N. Charter unless Iran suspended all uranium enrichment activities by August 31, 2006. Yet this still left some room for Beijing to maneuver, given the certainty that Iran would not comply. During the Security Council debate on imposing sanctions after August 31, both Beijing and Moscow tried to keep any sanctions to a minimum, especially if the sanctions could affect Chinese and/or Russian eco­nomic interests in Iran.

Rather than opposing Iran's nuclear program, China has instead actively assisted it. In the mid-1990s, Chinese technicians built an electromag­netic isotope separation system to enrich uranium at Iran's Karaj nuclear research facility despite offi­cial Chinese protestations that it had not done so. In the end, Iran opted for Russian nuclear technol­ogy, and China dropped out of the Iranian nuclear program for a short period.[26]

In October 1997, after building a small nuclear research reactor and a factory at Isfahan to fabricate zirconium fuel rod cladding and during prepara­tions for Chinese President Jiang Zemin's state visit to Washington, the Chinese provided a secret letter to the United States that pledged no new nuclear cooperation with Iran. Yet as of 2003, Chinese state-owned companies continued to service the Iranian zirconium production facility, a plant that should have been under IAEA safeguards but was not.[27] Since then, a constant stream of intelligence has indicated that Chinese engineers still assist at the Iranian uranium mine at Saghand and a ura­nium centrifuge facility near Isfahan.

In 2003, the CIA reported that "some interac­tions" in nuclear enrichment between China and Iran that took place in early 2002 (around the time of Chinese President Jiang's visit to Tehran) appar­ently violated China's 1997 commitments to Presi­dent Bill Clinton.[28] In fact, no evidence indicates that China has ever taken its nonproliferation com­mitments seriously. For instance, China signed a comprehensive nuclear cooperation agreement with Pakistan in 1986 and assisted Pakistan's nuclear pro­gram for more than a decade, providing an array of fissile materials, equipment, and personnel.

Another reason for concern is China's weapons sales to Iran, particularly given Iran's patronage of major regional terrorist groups. Along with Syria and Libya, Iran provides an estimated $50 million to $200 million in annual financial and material support to Hezbollah and Hamas. During the armed confrontation between Israel and Hezbollah in July-August 2006, a Chinese-made C-802 mis­sile struck an Israeli warship off Beirut. Although Hezbollah took responsibility for the attack, the missile apparently had been supplied by the Ira­nian government.[29] Iran purchased 75 C-802s from China in 1997 and allegedly has produced at least 75 more in collaboration with China.

The C-802 project is a fraction of China's overall weapons stake in Iran. China has sold several hun­dred Silkworm anti-ship cruise missiles to Iran since the late 1980s and has been Iran's major source of missile guidance equipment and technol­ogy since the early 1990s. In May 2002, Tehran reportedly purchased high-speed catamaran mis­sile patrol boats, which are equipped with up to eight C-701 anti-ship cruise missiles.[30] A group of Chinese technicians were sent to assist in training the Iranian navy and equipping the new patrol boats. Earlier in 2002, the Chinese provided Iran with shorter-range anti-ship cruise missiles for its coastal patrol boats.

Since the enactment of the Iran Nonproliferation Act of 2000, which was intended to curtail interna­tional aid to Iran's weapons of mass destruction and missile programs, 40 foreign companies and individ­uals[31]-nearly one-fourth of them Chinese weapons and technology firms-have been penalized for delivering advanced dual-use missile components and technology to Iran. In particular, Chinese gov­ernment-run firms, such as NORINCO, the Zibo Chemical Equipment Plant, and the China National Aerotechnology Import Export Corporation, have been banned repeatedly from doing business with the U.S. government and enterprises for violating the Missile Technology Control Regime, which China has violated continually since 1991 despite its repeated promises of compliance.

Syria.China's support for Syria is on a similar track. In April 2003, Beijing's state media an­nounced that China was very proud of Syria for "not succumbing to U.S. pressure" and praised Syria, saying that "it has always joined with the world's force of justice and peace to make tireless diplomatic efforts to seek political solution to the Iraqi crisis."[32] In June 2005, while the U.N. was investigating the Syrian-inspired killing of former Lebanese Prime Minister Rafik Hariri, Syrian Presi­dent Bashar al-Assad welcomed visiting Chinese Foreign Minister Li Zhaoxing by praising "China's significant role as a great power and permanent member to the U.N. Security Council."[33]

In October 2005, the U.N. Security Council unanimously adopted Resolution 1636, which demanded Syria's full cooperation with an investi­gation into Syrian involvement in the Hariri assas­sination and threatened "further action" in the event of noncompliance. Three co-sponsors of the resolution-the United States, Britain, and France-had to drop a threat of sanctions to get China's vote.[34] Russia also balked. To date, Syria still has not fully cooperated in the investigation or suffered any sanctions.

China also has long been Syria's preferred arms broker. In May 2004, China dispatched technicians to Damascus to help to expand Syria's medium-range Scud missile program.[35] China has also transferred missile guidance systems, engines, and solid fuels to Syria and has assisted Syria in devel­oping surface-to-surface ballistic missiles.[36]

The Palestinian Authority and Hamas. China's duplicity has been particularly visible with the Pal­estinian terrorist organization Hamas, which took over the administration of the Palestinian Govern­ing Authority in March 2006.

When Palestinian Foreign Minister Mahmud al-Zahar, who is a member of Hamas, announced in April 2006 that he intended to visit Beijing, an alarmed U.S. Deputy Secretary of State Robert Zoellick asked the Chinese whether it was true. A Hamas visit to Beijing undoubtedly would have complicated Chinese President Hu Jintao's April 20 visit to Washington. By April 6, the Chinese Foreign Ministry denied Zahar's statement. In a speech the day before President Hu's arrival, Zoellick said that he saw this as an example of U.S.-China coopera­tion. He again expressed his satisfaction with the Chinese response in his testimony before the House International Relations Committee on May 10.[37]

On May 18, however, the Chinese Foreign Minis­try announced that Zahar had indeed been invited to the China-Arab Forum in Beijing, where China likely discussed alternative funding for Hamas.[38] One diplomat in Beijing connected with the Zahar issue said, "[M]ay I suggest that before the visit of Hu to Washington it was 'not convenient' to the Chinese to confirm the [Zahar] invitation."[39]

As for Hamas's espousal of terrorism and the destruction of Israel, the Chinese Foreign Ministry dryly commented that "we don't necessarily agree with Hamas's policies, but as it is chosen by the Pal­estinian people, we should respect their choice."[40] Zahar left Beijing quite pleased with his four-day trip at the end of May.[41] Apparently angered by Beijing's behavior, Israeli intelligence officials later leaked reports of Chinese intelligence services' overly intimate ties with Hamas leaders.[42]

In any event, Zahar's visit to Beijing did not seem to have a moderating effect on Hamas's mili­tant wing, which killed two Israeli soldiers in June 2006 and kidnapped a third. For its part, Hamas now believes it has in China a great-power patron that will help to diffuse the pressures from the United States and the European Union to renounce terrorism and its ultimate goal of elimi­nating the Israeli state.

U.S. Policy Options

The United States does not have many attractive policy alternatives in dealing with China's expand­ing presence in the Middle East. However, the U.S. government can and should:

• Take a strong stance against China on prolif­eration issues. Rogue states such as Iran and Syria continue to sponsor regional terrorist groups, including Hezbollah and Hamas. Ira­nian Revolutionary Guards train Hezbollah ter­rorists and have provided them with sophisticated bombs and long-range Katyusha rockets. Syria also has supported Hezbollah and permits Iran to use Syrian airfields to trans­port weapons, ammunition, and equipment to its Lebanon-based allies.
  
  China's reckless weapons dealings with these terrorist-sponsoring regimes often translate into the terrorist elements gaining possession of powerful Chinese-made missiles and other military equipment for use against Israel and potentially against U.S. military installations in the Middle East. China will not moderate its behavior while Washington still refuses to con­front China. However, Beijing is still sensitive to public perceptions in the United States about its covert backing of murderous terrorist orga­nizations. Washington should address these issues with the Chinese leadership and call for China to modify its policy in the region.
  
  
• Enforce sanctions on Chinese companies that invest in Iran's oil and gas industry by renew­ing the Iran-Libya Sanctions Act (ILSA). ILSA was adopted in 1996 and renewed for another five years in 2001. It is designed to deter foreign investment in the Iranian and Libyan energy sec­tors, which have been major sources of funding for their efforts to acquire weapons of mass destruction and to support terrorist organiza­tions.[43] ILSA requires the President to impose at least two out of six available sanctions on foreign companies that invest more than $20 million in one year in Iran's energy sector.
  
  Over the past five years, Iran's pursuit of nuclear weapons and support for terrorist groups have intensified as China has estab­lished itself as Iran's key financial benefactor through massive energy investment. Congress should reauthorize ILSA for Iran before it expires in September 2006[44] to tighten pres­sure on the Iranian regime and foreign compa­nies with large investments in the Iranian energy sector-Chinese firms in particular- that indirectly fund Iran's illicit activities.
  
  
• Encourage trade and economic relations with the Middle East. The repercussions of the 9/11 terrorist attacks severely hindered U.S.-Arab trade in 2002 due to heightened restrictive security measures instituted throughout the U.S. economy. Since then, U.S.-Arab trade has expanded at an unprecedented rate of over 20 percent per year for the past three years, reach­ing a record high of $94.4 billion in 2005- almost twice the volume of China-Arab trade.
  
  Proposed in 2003, the Middle East Free Trade Area Initiative is intended to revitalize U.S. trade and investment with the Middle East. The initia­tive seeks to lay a foundation for economic development and transparency through support for accession to the World Trade Organization, free trade agreements (FTAs), and other trade and investment programs. This initiative has already produced bilateral FTAs with five coun­tries (Israel, Jordan, Morocco, Bahrain, and Oman), and Washington should continue to urge individual countries to participate in com­prehensive free trade agreements that lower trade and investment barriers, protect property rights, and strengthen government and commer­cial regulations. Washington should also encour­age a broader integration of the Greater Arab Free Trade Area into the global economy.
  
  
• Promote democratic processes, the rule of law, and civil rights. The Middle East Partner­ship Initiative (MEPI) demonstrates the strong U.S. commitment to promoting democratic prin­ciples, economic growth and development, fundamental educational opportunities, and human rights in the Arab world. MEPI was established in 2002 to create basic educational and economic opportunities and foster civil rights, the rule of law, and democratic processes in the Middle East. The U.S. government has devoted over $293 million in four years to more than 350 reform programs in both the government and private sectors.[45] These in­vestments are supplemented by annual U.S. bilateral economic assistance of $1 billion.
  
  MEPI has increased transparency and pluralism in national and local elections, has provided technical and financial support to build an open and business-conducive environment, and has created educational opportunities, especially for women. The United States should make a consistent effort to restrain the behavior of oppressive Arab regimes and to help Arab governments and nongovernmental organiza­tions to make successful reform transitions by deftly implementing MEPI.
  
  
• Organize international support for demo­cratic oppositions within such repressive Middle Eastern regimes as Iran and Syria. International support should be provided to democratic oppositions that are reform-minded and opposed to terrorism through discreet financial aid, organizational training, and edu­cational exchanges. Moreover, it is critical that Washington help to create a suitable atmo­sphere for free speech and publication to facili­tate the free flow of uncensored political ideas.
  
  
• Diversify energy sources. Middle Eastern oil currently accounts for 17 percent of total U.S. oil imports. The percentage of world oil reserves concentrated in the Middle East is expected to grow even higher than the current 80 percent level as oil production in many of today's large oil suppliers such as the United States, Mexico, and Norway decreases. Accord­ing to the International Energy Agency, U.S. dependence on Middle Eastern oil imports will increase to 50 percent by 2030.[46]
  
  Given the increasingly severe worldwide com­petition for Middle Eastern oil, China's aggres­sive energy policy poses a serious threat to U.S. energy security. Dependence on Middle Eastern oil also means that the United States is poten­tially vulnerable to the erratic policies of Arab energy suppliers. The United States should continue to search for additional reliable oil and gas suppliers while reducing its depen­dence on energy from abroad and developing renewable energy sources.

Conclusion

If Washington is firm, China will remain sensi­tive to U.S. perceptions that it is aiding and abetting Iran's nuclear ambitions, Syria's murderous designs on Lebanon and Israel, and Hamas's continued vio­lence against Israel despite the withdrawal of inter­national funding.

However, China will not moderate its behavior while Washington still refuses to confront China. Since the 1990s, U.S. Administrations have turned a blind eye to China's complicity in the prolifera­tion of dangerous weapons in the Middle East, especially in Iran. Chinese state-owned and state-directed companies provide dangerous weapons, technologies, and scientific assistance to Iran and Syria as a matter of state policy. Because Washing­ton refuses to acknowledge that these "commercial" transactions are, in fact, in fulfillment of Beijing's policies, each incident provokes only a round or two of Washington wrist-slapping while the Chi­nese continue their activities unabated.

At this point, only tough, public confrontation of Beijing's behavior will get China's attention. As U.S. consumers learn that Beijing's irresponsible tactics and policies are antithetical to the interests of stabil­ity and freedom in the world's most volatile territory, they will find it harder to buy the "made in China" label, especially if they feel that China is unjustly retaliating against U.S. exports. Facing down China's dangerous behavior in the open will get the attention of the American public, to whom China wishes to sell $250 billion of exports each year.

Ji Hye Shin is a Research Assistant and John J. Tkacik, Jr., is Senior Research Fellow in China, Taiwan, and Mongolia Policy in the Asian Studies Center at The Heritage Foundation.